I do not know how to invest my money. How do I find a stock broker?

I do not know how to invest my money outside of my work 401(k). How do I find a stock broker, and what attributes do I need to look for? I am guessing I want low fees and no commissions, but I need advice. I have around $40k to start my investment with.

A:

Here’s a simple approach. Just put your money into a couple of index funds. You could simply put a portion of your money in an S&P 500 index fund and the rest in a short-term government bond index fund. How much in each? (I’ll get to that in a moment.)

You could expand that out by adding additional index funds. Perhaps a real estate investment trust fund. Some would suggest an international fund, but I feel that you are getting considerable international exposure via many large multinational companies in the S&P 500.

The amount that you allocate to each fund is up for debate. Some suggest that you put “110 – age” into your stock funds. So if you are 30, you would put 80% (110 – 30 = 80) into stocks and tweak that every year or every five years. Some suggest those with a healthier appetite for risk can go to 120 – age and those more risk averse should stick to 100 – age. (Search the web for investing risk quiz, there are many out there.)

Others suggest that you establish an allocation and stick with that. Once Warren Buffett dies, he is planning tho have his wife with a simple portfolio of 90% in the S&P 500 and 10% in short-term bonds. His wife is in her 70s, so obviously Buffett’s recommendation for his wife flies in the face of the advice that you would receive from most financial advisors. (Buffett isn’t suggesting that everyone do this, but he does suggest that everyone would be better off with a two-fund portfolio (S&P 500 and government bonds) than most other investments.

You could open an account with any big name brokerage, like Vanguard, Schwab, TD AMeritrade, Fidelity, Scottrade, just to name a few. Most have their own index funds, so your fees will be minuscule.